The Turkish central bank is trying to slow down economic growth, internal demand and credit expansion to avoid dangerous imbalances between Turkey and other countries where growth is weaker, deputy central bank governor Mehmet Yorukoglu said Monday. "In 2010, (Turkey's) growth was close to 9 percent. For 2011, we are expecting the rate of around 7 percent year-on-year growth. But we cannot say that this growth is a healthy growth," he told a financial forum in Kuwait. "We have very good fundamentals at home. The public sector finances are very healthy, the banking sector is very healthy, productivity and output growth is very strong, but demand imbalances between our economy and the economies we export to may create financial stability risks. "We have to be more creative and we have to use other tools, macroprudential tools to bring our economy to a more balanced pattern." Turkey's strong growth, combined with much weaker demand in trading partners such as Europe and the United States, is fuelling a huge Turkish current account deficit which the government estimates at 9.4 percent of gross domestic product this year. This month the central bank hiked its overnight lending rate by 3.5 percentage points to 12.5 percent in an effort to prevent excessive depreciation of the lira. Last Wednesday, central bank governor Erdem Basci said the bank had started monetary tightening to prevent lira depreciation from having a lasting impact on inflation. Yorukoglu's mention of macroprudential tools referred to efforts to influence banks' lending behaviour through tools other than interest rates - for example, reserve requirements. He struck a gloomy note on the ability of policymakers to remove sources of instability in the global economy. "Let's assume that sovereign debt problems are resolved successfully without creating any deep recessions and crisis. Will that be over? Are we done? Are we going to be safe? No. Because the main problems, imbalances that created the initial 2008 crisis are still there, even now bigger," Yorukoglu said. "If you look at growth differentials between advanced and emerging economies, that differential is increasing and will probably increase even more." He added, "If you look at inflation differentials between advanced and emerging economies, that is also widening. Policy interest rates between advanced and emerging economies are also getting wider. "So under these circumstances, even if we successfully resolve the sovereign debt crisis globally, increasing global imbalances will accumulate further financial stability risks, unless especially emerging economies start using stronger macroprudential tools."
